Yesterday, D.R. Horton (DHI) announced that CEO Donald Tomnitz was stepping down after 31 years at the company and 15 years at the helm of the Ft. Worth, Texas-based builder. He will be replaced by David Auld, a former division president of the company’s Orlando Division and region president of the company’s home building divisions in Florida, North and South Carolina, Georgia, and Alabama. Auld has been with the company for 25 years and served as COO since November 2013. Mike Murray, senior vice president of business development, will fill Auld’s COO slot.  

“While the announcement may cause a quick double-take, given this is the end of September, the reality is that this was coming for a while now,” wrote Stephen East at ISI Group. “No incremental information is embedded in the announcement, nor should anything be read into the short timeline. This is a transition that has been in the making since David Auld was promoted to COO.”

Steady Succession

Horton’s continuity is the main reason David Goldberg from UBS expects the transition to be seamless at Horton. “Given the consistent strategy employed at the company, combined with its strong culture, we expect the transition to be seamless,” he said in a report. “To this point, Mr. Tomnitz has agreed to stay on for three years in a consulting role to assist Mr. Auld in his new responsibilities. Overall, we believe nothing is likely to change at D.R. Horton.”

East used almost the exact same words in his note. “We see little changing in the day-to-day business of DHI,” East wrote. “Tomnitz worked closely with Don Horton, the founder, on a daily basis, developing DHI's strategy in a collaborative manor.  Horton remains a daily fixture at DHI, thus, while Auld will put his mark on the company, we believe investors will get a well-known entity.”  

Like East, Stephen Kim at Barclay’s believed the company had been preparing for Tomitz’s retirement since Auld was named the first sole COO in company history in 2013 and that Chairman Don Horton remained “deeply involved” in operation, which ensures Horton’s “operating management style will remain fairly consistent.” Additionally, he expects Tomnitz to concentrate on the company’s Western markets during his three-year consulting role.

“Overall, we continue to regard DHI as our top pick in the homebuilding sector, as its Express and Emerald initiatives, together with its intent to harvest its land assets, position the company to post outsized growth and cash flow relative to peers,” Kim said in the note.

East believes that Auld will bring core competencies to the role that will help Horton continue to grow. “Auld is very much the operator, with M&A [mergers and acquisitions] integration experience as well. Thus, we expect even more focus on execution moving forward,” East wrote. “Given its push down the price spectrum with its Express product, we believe this skillset will be at a premium in the future.”

But just because it should be business as usual at Horton doesn’t mean Tomnitz won’t be missed. “While little changes day-to-day, there is no replacing Tomnitz on the conference calls,” East wrote. “To say he was unique would be an understatement.  [His utterance of one little phrase provided CNBC with a full day's worth of programming.]  We believe Tomnitz was one of two housing CEOs investors tuned into to get the unvarnished view of the industry--good or bad. We will miss him.”